Facebook Likes Instagram; Buys it for $1 Billion

By Rakesh Raman

Tech market analysts were stunned on Monday when Facebook said it will acquire Instagram, a photo-sharing app for mobile devices.

It was stated that the total consideration for San Francisco-based Instagram is nearly $1 billion in a combination of cash and shares of Facebook.

Mark Zuckerberg, founder and CEO of Facebook, said: “I’m excited to share the news that we’ve agreed to acquire Instagram.”

Only God knows why Zuckerberg is excited after this avoidable splurge. Facebook is already allowing its users to share photos and all knickknackery on its site, which also offers mobile access to users. Then why this benevolence worth a whopping one billion dollars on a little-known venture called Instagram?

[ Also Read: Seven Serious UX Flaws on Facebook ]

It’s likely that Facebook has roped in Instagram with the allurement of its shares, as Facebook has planned an IPO (initial public offering) – expected next month.

Although it has not revealed the ratio of cash vs. shares that it will shell out in this deal, probably it will be more shares, less cash for Instagram because Facebook is a paper-rich-cash-poor company.

[ Also Read: Why and How Companies Use Facebook ]

It can take such wild risks with its shares because analysts already foresee tough times ahead for Facebook after its IPO.

The National Inflation Association (NIA) says that it believes Facebook will likely start trading this May at a peak valuation of $100 billion and see its market capitalization and share price decrease in value in the years afterwards. (Read: Facebook Going Public at Peak Valuation: NIA)

It seems to be a step taken in haste, as Facebook has yet to define the synergies between its own photo-sharing offerings and the Instagram app. In all probability, it will result in messy overlaps that Facebook has decided to buy for one billion dollars.

By Rakesh Raman, the managing editor of RMN Digital.

Photo courtesy: Facebook